Maersk Oil UK Ltd (Formerly Kerr-McGee Oil (UK) Plc) v Dresser-Rand (UK) Ltd

Contractual exclusion clauses require clear words before removing common-law rights or remedies. A warranty preserving rights provided by law may coexist with contractual remedial machinery and a liability cap.

Where a contract contains an agreed order of precedence, an overriding warranty may prevail over inconsistent technical specifications. A warranty that equipment be suitable for its intended purpose is not necessarily qualified by a reasonableness standard.

Contractual notice provisions must be applied according to their wording. A warranty claim requirement need not be written or served in a particular form unless the contract says so.

Remedial investigation costs are recoverable where they naturally flow from the breach and are not caused by a wholly inappropriate response. A global claim may succeed if the loss can be apportioned on an evidential and reasonably cautious basis.

Kerr-McGee Oil (UK) Plc, now operated by Maersk Oil UK Ltd, contracted with Dresser-Rand (UK) Ltd for the design and supply of offshore gas-compression equipment for the Janice oilfield.

The claimant alleged that the compressor packages were defective and unsuitable for their intended use. It claimed the costs of remedial works, investigations, replacement equipment, additional services and diesel consumption. The defendant relied on contractual warranties, notice provisions, exclusion and limitation clauses, compromise, estoppel, mitigation and causation arguments. It also brought a counterclaim.

The court determined the construction of the contract, the scope of the defendant’s design obligations, the commencement and operation of the warranty period, the liability cap, the recoverability of remedial expenditure and the treatment of globally presented losses.

1. Contractual remedies and construction. Clear words were required before the contract could remove common-law rights or remedies. Clause 11.5 preserved warranties and rights provided by law, and clause 42 made the contractual remedies exclusive only as stated. The claimant therefore retained a general right to damages, subject to the contractual limitation provisions.
2. Notice and warranty requirements. The contract required an adequate requirement under article 11 but did not require that requirement to be written or served in the form prescribed by the general notices clause. Whether an adequate requirement had been made was a question for each claim. Prudence nevertheless required a written record identifying the defect, corrective work, notification and relevant costs.
3. Fitness for purpose and precedence. “Suitable for the purpose” and “fit for purpose” were interchangeable in this contract and were not qualified by the word “reasonably”. The warranty in article 11.1 was paramount under the agreed order of precedence. Compliance with a functional specification or industry standard did not necessarily satisfy that overriding warranty.
4. Design responsibility. Dresser-Rand remained responsible for designing and supplying a durable and efficient compression package, including the relevant process requirements. The absence of a specific contractual requirement for process simulation did not relieve it of that obligation. No estoppel by convention displaced the design responsibility or warranties.
5. Limitation and interest. The liability cap was calculated by reference to the reduced purchase price after credit for work performed by the claimant in place of the defendant. The cap did not exclude statutory and discretionary interest on damages.
6. Mitigation and causation. Investigation, measurement and remedial costs naturally flowing from breach were recoverable. The use of third-party advisers broke causation only if their advice or the resulting work constituted a completely inappropriate response. The defendant bore the burden of proving both unreasonable mitigation and the amount by which the loss would have been reduced.
7. Global claims. A global claim could succeed where the defendant’s breaches were a material or dominant cause, or where apportionment was possible on the evidence. The diesel claim failed because the evidence could not identify a dominant cause or support a reliable apportionment. A cautious award was made for spare parts where a significant breach-related element was proved.
8. The claimant recovered damages totalling £1,930,683.11, subject to credit for the defendant’s £166,000 counterclaim. The counterclaim was unsuccessful. Costs and interest were reserved for a further hearing.

First-instance decision. No appellate history was stated in the judgment.